For many in the finance sector, the rapid growth of the fintech industry over the last decade has come as no surprise. The evolution of digital environments and the growing global demand for effective banking solutions have created a new market that traditional banking institutions have struggled to cater to. The result has been the emergence of an abundance of new fintech start-ups bringing innovative new ideas and smart solutions to consumers across the globe. With 88% of major financial services expressing concern regarding loss of revenue to these burgeoning companies, the status quo is becoming increasingly unsettled by their new rivals.
A major tactic that has allowed these companies to rattle market leaders has been to target smaller nations, identifying the value of reaching out to these often-untapped markets. Considering this, let’s dive into the reasons behind fintech investment in smaller nations and look at just how fintech companies have started to cause a stir.
The benefits of Fintech investment in smaller nations:
While the benefits of investing in large, wealthy nations are obvious, there remain several challenges that fintech companies face in such financial environments. With well-developed banking systems in place, composed of companies firmly rooted in the national identity, breaking into the market is difficult, with only the most innovative concepts able to make it through. Furthermore, these nations have well-defined and often strict financial regulations, which, while protecting consumer interests, often impose complex compliance requirements designed for the traditional banking system. This has led to many fintech start-ups focusing their time and resources on smaller nations.
In contrast, smaller nations present a blank canvas with both governments and residents more open to the concept of modern financial solutions. Working within a less competitive financial landscape, new fintech companies can establish their position in the market more easily while the smaller market size comes with lower operating costs – ideal for start-ups with limited capital. Companies are seeing the value of establishing themselves in smaller nations like New Zealand, Ireland, or Finland first, providing them a lower-risk environment to improve operations from which they can scale up and enter larger markets.
Nowhere has this been seen more than in iGaming where many companies have established themselves in smaller scenes like New Zealand before entering larger markets such as those in North America. Offering customers some of the fastest payout casinos available, the innovative platforms shown by Casino.org have refined their offerings in smaller markets while building the capital to break into larger ones.
Investment strategies
To take advantage of the variety of benefits available in smaller nations, fintech companies have adapted, using novel investment strategies specifically catered towards the unique financial setting they are presented with.
An understanding of the requirement for tailored solutions for local populations has been key. While adapting business operations to suit the language, currency, and consumer preferences of a country, many businesses have also sought to evolve their practices to keep in line with long-standing national cultures and traditions. Going one step further, firms have also collaborated with local businesses, gaining insight into current operating standards while harbouring a sense of trust and togetherness with local people.
Consistent and constructive collaborations with regulators have also been a key strategy for fintech investment in smaller nations. Lawmakers in many smaller developing countries are seeing the potential benefits of allowing innovative fintech companies to operate in their economies, and so, are open to regulatory changes to accommodate emerging concepts. For example, 2025 will see New Zealand launch a ‘regulatory sandbox’ whereby fintech firms will be able to test new products and services that would usually be limited by legislation.
For many smaller nations, consumer understanding of financial practices can be limited, especially when compared to their larger counterparts. Because of this, a key feature used by many fintech firms moving into smaller markets has been to invest in educating customers about the benefits of modern finance. By improving financial literacy, companies can increase their potential customer base and accelerate the widespread adoption of their services.
Where has investment been made?
Considering these investment strategies, how exactly are we now seeing fintech investment in smaller nations?
1. Introducing microfinance
For small and medium-sized businesses, access to loans has long been an issue in smaller nations, with the strict lending requirements offered by traditional banks often excluding them. The introduction of microfinance by fintech companies such as Xero, Quickbooks, and Wayflyer has been revolutionary, opening up the door for smaller companies to access credit and contribute to regional economies.
2. Streamlining international payments
In an increasingly globalised economy, it has become more important than ever for businesses and individuals to be able to carry out cross-border payments effectively. Nowhere is this more useful than in smaller countries, with the ability to operate on an international level massively expanding the scope of their operations. The emergence of fintech companies like Wise and Chipper has allowed this, enabling the rapid transfer of payments across the globe.
3. Adoption of digital payments
Fintech firms have also transformed the way many smaller economies operate, shifting payments away from cash towards digital payment systems and removing the need for traditional banking structures. Kenyan fintech start-up, M-Pesa, is a great example. By providing mobile phone-based banking services across the country, the company has managed to transform the financial situation of some of the poorest communities in the world. And, with 59% of all of Kenya’s GDP now going through the service sector, the company’s trajectory is only going upwards.
Fintech investment in smaller nations may have raised some eyebrows, but assessing the impact, it appears to have been the right one. By identifying and rectifying the needs of consumers in these regions, firms have tapped into dormant markets primed for investment and, in doing so, have been greatly rewarded. More importantly, however, this move has boosted the socioeconomic situation of smaller nations, levelling the global financial playing field. As innovative companies continue to emerge, expect to see smaller economies continue to reap the rewards.
